Amazon swings to big loss; YRC active ahead of earnings; Level 3 fall continues; sector woes hurt Intel

By Evan Weinberger

New York, Oct. 24 - Amazon.com Inc. took a dive Wednesday as its third-quarter earnings only just beat Wall Street estimates. YRC Worldwide Inc., formerly Yellow Roadway Corp., convertibles moved a lot, but didn't go far, in anticipation of earnings.

Level 3 Communications Inc. continued its freefall while Intel Corp. convertibles dropped on bad third-quarter reports from other semiconductor producers.

Nabors Industries Inc. convertibles were up following its third-quarter earnings report. Advanced Medical Optics Inc. convertibles slipped ahead of its earnings call. Superior Energy Services Inc. also fell with its third-quarter earnings set to come to light on Tuesday.

AMR Corp. convertibles took a spill as American Airlines pilots asked for a 49% raise.

With earnings season in full swing, many convertibles are seeing active trading, a trader said after the close Wednesday. "A lot of guys are trading the vol. They're just buying and selling against the stocks with these things," he said.

News that Merrill Lynch posted its first quarterly loss since 2001 - ahem, $7.4 billion - and sales of new homes took their steepest fall since 1999 sent the Dow Jones Industrial Average down 200 points almost immediately. "The market was horrible most of the day," a trader said.

Something happened to spark a rally, with the Dow even poking its head above the break-even mark a few times. That something was the whisper of the magic words - rate cut - in investors' ears.

The Dow rallied to close the day down a negligible 0.98 points, or 0.01%, for a close of 13,675.25.

The Nasdaq wasn't quite as resilient on the day, as several semiconductor producers reported poor third-quarter earnings and disappointment that Amazon only did a little better than Wall Street estimated in the third quarter. The tech heavy index sank 24.50 points, or 0.88%, to close at 2,774.76. The Standard & Poor's 500 slipped 3.71 points, or 0.24%, for a 1,515.88 close.

Two new issues crossed the wires Wednesday, one from France and another from Colorado. Theolia priced an upsized €215 million in 2% Oceane convertible bonds due Jan. 1, 2014 to yield 3.25% with an initial conversion premium of 30% Tuesday night. The convertibles were originally announced at €190 million with a yield of 3.25% to 3.75% and an initial conversion premium of 25% to 30%.

The Regulation S transaction priced Tuesday after the market close. There is a €25 million greenshoe.

The bonds will be issued at par of €20.80, which is also the conversion price. The settlement date is Oct. 31. They have a redemption price of €22.5430, or 108.38%.

The bonds are callable beginning Jan. 1, 2012 subject to a 135% hurdle, and there is a put option on Jan. 1, 2012 at a redemption price of 105.48%, or €21.9398. The bonds have full takeover protection.

Theolia is an Aix-en-Provence, France-based renewable energy producer. Theolia plans to use the proceeds to speed up its wind farm implementation program throughout Europe and for potential acquisitions.

Golden Star Resources Ltd. priced $125 million in 4% convertible senior unsecured debentures due Nov. 30, 2012 with an initial conversion premium of 31% Wednesday before the market open. The debentures were talked at a coupon of 3.5% to 4% and an initial conversion premium of 32.5% to 37.5%.

The Rule 144A debentures are also being offered in Canada on a private placement basis subject to Regulation S. The settlement date is Nov. 8.

The conversion price is $5 and the conversion ratio is 200.

The debentures have call protection for life. There is change-of-control protection.

Golden Star is a Littleton, Colo.-based gold mining firm. The company plans to use the proceeds to repay its existing $50 million in 6.85% senior convertible notes due April 15, 2009 and the balance for property development and for general corporate purposes.

One new issue is set to come to market Thursday after the market close.

Lincare Holdings Inc. launched $500 million in convertible senior debentures due 2037 to be issued in two tranches Wednesday after the market close.

The first tranche of $250 million in series A convertible senior debentures due Nov. 1, 2037 is talked at a coupon of 2.75% to 3.25% with an initial conversion premium of 50% to 55%.

The second tranche of $250 million in series B convertible senior debentures due Nov. 1, 2037 is talked at a coupon of 2.75% to 3.25% with an initial conversion premium of 50% to 55%.

Each tranche of the Rule 144A transaction has a $25 million over-allotment option. The debentures are set to price Thursday after the market close.

The series A debentures have hard call protection for the first five years and puts in years five, 10, 15, 20 and 25.

The series B debentures have hard call protection for the first seven years and puts in years seven, 10, 15, 20 and 25.

Both tranches have contingent conversions subject to a 130% hurdle until Oct. 1, 2037 and a contingent payment trigger of 120%. Both tranches have net share settlement agreements and dividend and change-of-control protections.

Lincare provides oxygen and other respiratory therapy services to the home health care market. Lincare is based in Clearwater, Fla. The company plans to use $150 million to repurchase shares of its common stock. An undisclosed further amount may be used for further stock buybacks. The balance will be used to fund some acquisitions and for general corporate purposes.

Amazon battered on earnings

Seattle-based Amazon.com, the world's largest internet retailer, was bashed by investors after the company's third-quarter earnings only came in a penny better than Wall Street's expectations. The results were announced Tuesday after the market close.

Amazon stock (Nasdaq: AMZN) had been riding a hot streak in recent weeks, and investors decided that the earnings, and the outlook, didn't support the heights the stock had reached.

So the stock fell, as did the convertibles. One trader said Amazon was a "big vol trade" where investors could buy back some of the gamma.

And buy back they did. Amazon's 4.75% convertible notes due Feb. 1, 2009 closed Wednesday at 117.01 versus a closing stock price of $88.73 in heavy trading. They closed Tuesday at 130.202 versus a stock price of $100.82.

Amazon stock was thumped on the day, giving back $12.09, or 11.99%.

Someone knows something about Yellow

The last couple of days, YRC Worldwide, the trucking company also known as Yellow Roadway, has been far more active than normal. With an earnings call set for Thursday after market close, it's clear that some investors are trying to set their position before the news hits. "It traded 43 million yesterday. It traded a ton today," one trader said. "Somebody out there must seem to think they know something."

The Overland Park, Kan.-based company's convertibles were among the most active Wednesday, and they closed the day at 106.86 versus a closing stock price of $26.67. They closed Tuesday at 107.12 versus a stock price of $26.96.

YRC stock (NYSE: YRCW) dumped 29 cents, or 1.08%, on the day.

Level 3 continues fall

Broomfield, Colo.-based telecommunications firm Level 3 continued to fall Wednesday. The numbers weren't nearly as dramatic as Tuesday's following a significant drop in third-quarter earnings and a warning for all of 2008, but they were significant.

Level 3's 3.5% convertible senior notes due June 15, 2012 closed Wednesday at 87.6854 versus a closing stock price of $3.18. They closed Tuesday at 90.6182 versus a stock price of $3.28. The convertibles had been trading at more than 104 on Monday.

Level 3 stock (Nasdaq: LVLT) gave back 10 cents, or 3.05%, on the day.

Rivals' earnings slam Intel

Santa Clara, Calif.-based Intel may be the big guy in semiconductors, but when its competitors sneeze, Intel still catches a cold.

Rival semiconductor firms have been reporting weak third-quarter earnings in recent days due to a drop in orders. Their stocks have dropped, and so has Intel's.

The same holds true for the convertibles. Intel's 2.95% junior subordinated convertible notes due Dec. 15, 2035 closed Wednesday at 103.973 versus a closing stock price of $26.01. They closed Tuesday at 105.439 versus a stock price of $26.80.

Intel stock (Nasdaq: INTC) tumbled 79 cents, or 2.95%, on the day.

Nabors up on earnings

Hamilton, Bermuda-based land-based oil driller Nabors Industries saw its convertibles rise after a distressing third-quarter earnings report was released. Profits at Nabors dropped 26% in the third quarter, blamed mostly on weakness in the North American market.

Nabors' 0.94% exchangeable senior notes due May 15, 2011 actually gained a half point, closing Wednesday at 94.865 versus a closing stock price of $28.53. They closed Tuesday at 94.334 versus a stock price of $28.55.

Nabors stock (NYSE: NBR) slipped 2 cents, or 0.07%, on Wednesday.

Eyes on Advanced Medical Optics

Santa Ana, Calif.-based eye care firm Advanced Medical Optics (NYSE: EYE) is set to announce its third-quarter earnings before the market open Thursday. Advanced Medical's attempts to buy rival eye care maker Bausch & Lomb were stymied during the course of the quarter.

In anticipation of the numbers, Advanced Medical's 3.25% convertible senior subordinated notes due Aug. 1, 2026 closed Wednesday at 83.9035 versus a closing stock price of $28.67. They closed Tuesday at 84.7565 versus a stock price of $29.61.

Advanced Medical's stock was whacked for a 94 cent, or 3.17%, loss on the day.

Superior Energy active, if not mobile

Harvey, La.-based oil services provider Superior Energy has been active in recent days, although it's unclear why. An analyst pointed to a possible upgrade by a rival brokerage shop, although he has been unable to find the report.

Either way, investors have been getting in and out of the convertibles at a rapid clip in recent days.

Superior Energy's 1.5% exchangeable senior notes due Dec. 15, 2026 closed Wednesday at 96.8175 versus a closing stock price of $32.80. They closed Wednesday at 97.145 versus a stock price of $32.99.

Superior Energy stock (NYSE: SPN) dropped 19 cents, or 0.58%, on Wednesday.

Pilots want raise, AMR falls

When American Airlines and the Allied Pilots Association last agreed to a contract in 2003, the union claims that it gave serious concessions on wages. Not this time. The union submitted a proposal Friday to American Airlines demanding a 49% raise, among other salary considerations.

The stocks and bonds linked to Forth Worth, Texas-based AMR Corp., American's parent company, dropped on the day.

AMR's 4.5% convertible senior notes due Feb. 15, 2024 closed Wednesday at 126.023 versus a closing stock price of $24.16. They closed Tuesday at 128.275 versus a stock price of $24.65.

AMR stock (NYSE: AMR) fell 49 cents, or 1.99%, on the day.

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